Error: unknown Blosxom flavour "comments"
I'm afraid this is the first I've heard of a "comments" flavoured Blosxom. Try dropping the "/+comments" bit from the end of the URL.
Thu, 02 Mar 2006
Capital gains tax
I wrote a piece in yesterday’s Financial Express about the
budget proposal related to capital gains taxation and securities
transaction tax. I wrote that the government seems to have realized
that its decision two years ago to replace the capital gains tax on
securities with a tax on securities transactions was a mistake. My
article makes the following points:
- The capital gains tax is like a call option on the stock market
index. If the market rises and people earn capital gains, the
government gets a share of that gain. When the market goes down, the
government does not share the loss, it only allows the loss to be
- Call options are too precious to be just thrown away but back in
2004 when “prices of securities were much lower” as the
Finance Minister points out now, the call option must have looked
less valuable. Now, the Finance Minister wants to bring back capital
gains tax in two different ways.
- The really imaginative solution is to exploit the Minimum
Alternative Tax (MAT) to achieve a tax rate of 10% without
indexation which is the same as what foreign investors pay.
- The cruder solution is to raise the securities transaction tax
“with a view to raise additional resources and also plug the
leakage of tax revenue”. In other words, at last the
government admits that the substitution of capital gains tax with
the STT is leading to a leakage of revenues.